Higher fuel and staff costs to weigh on Ryanair profits

DUBLIN (Reuters) - Ryanair (RYA.I) expects annual profits to fall for the first time in five years due to higher fuel and staffing costs and flat fares, Europe’s biggest low-cost airline said on Monday.

However, shares in the Irish company rose more than 5 percent as analysts said its rapid recovery from a rostering crisis that led it to cancel 20,000 flights from September showed any setbacks this year were likely to be short-lived.

Ryanair said profit after tax rose 10 percent to a record 1.45 billion euros ($1.70 billion) in the year ended March 31, as passenger numbers increased 9 percent despite the grounding of 25 of its 400 planes from November due to the rota problems.

Its aircraft were also more full than rivals’, with its so-called load factor of 95 percent the highest among European low cost airlines.

For the current financial year, Ryanair said profit would fall back to 1.25-1.35 billion euros, slightly below analysts’ average forecast of 1.37 billion, due in part to an expected 9 percent increase in unit costs.

The company said this was down to rising fuel costs and pay increases for staff that followed its rostering troubles.

Ryanair described its profit forecast as being “on the pessimistic side of cautious,” and said declining non-fuel unit costs would follow thereafter as efficiencies come through from plans to grow its fleet by 50 percent by 2024.

“Over the next 12 months we are putting in all the costs that we will need to be able grow the business to 200 million passengers,” Chief Executive Michael O’Leary said in a video presentation following the results.

At 1215 GMT (10.15 a.m. ET), Ryanair shares, down 18 percent from an all-time high before the first cancellations were announced but up about 14 percent from mid-December, were 5.3 percent higher at 16.295 euros, reversing earlier losses.

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“To some extent it looks as though they have ‘kitchen-sinked’ their labor costs,” Goodbody Stockbrokers analyst Mark Simpson wrote in a note, keeping a ‘buy’ rating on the shares.

“Having loaded up the negative news re: costs, we think the stock has now found a base, with better news of fares to come at the next release in July.”

STRIKES POSSIBLE

Ryanair averted the threat of widespread Christmas strikes by unilaterally recognizing unions in December for the first time in its 32-year history, but it has struggled to formalize relations in some countries.

After its Irish union threatened action on Saturday, O’Leary said that while he was not expecting strikes or disruptions, he could not rule them out and would face any down.

“If someone’s going to be unreasonable and wants to question the model, then fine frankly, we’ll have a strike,” he said.

For the current financial year, Ryanair saw downward pressure on fares from above average capacity growth in Europe, although it predicted some upward pressure later in the year and O’Leary said he was much more optimistic about summer 2019.

While the company expects to grow traffic by 7 percent to 139 million, up on the 138 million last forecast, and saw revenue from ancillary products outperforming that, it said that would not be enough to offset higher costs and its expectation for broadly flat fares over the full year.

Its downbeat tone was in contrast to rival EasyJet (EZJ.L), Europe’s second-biggest low-cost airline, which said last week that it expects profits to rise more than 30 percent for the year to end-September as it benefits from strong travel demand and the collapse of some smaller rivals.

Long a critic of Britain’s handling of its departure from the European Union, O’Leary said Brexit continued to be “a fog of indecision.”

He warned that if Britain left the EU without a deal, Ryanair would have to restrict the voting rights of all UK shareholders to ensure it remained majority EU-owned to comply with its licensing and flight rights.